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As a small or medium-sized business owner, you’re responsible for the livelihoods of your own family as well as your employees. That’s a big responsibility.

So, what do you do if something goes wrong and your income is reduced or stops altogether?

It’s essential to manage this risk to protect yourself and your employees. As well as taking a proactive approach to risk management in your business, insurance is vital.

This is because you can’t control everything. As much as you can put policies and processes in place to keep your employees safe and healthy, you can’t predict or plan for fires, floods, earthquakes, burglaries, or other adverse incidents that could affect your business.

What happens when your business isn’t earning money

If an incident or event results in your business being unable to generate income, here’s what could happen:

Dip into your savings. If you have cash reserves, you’ll need to start drawing on these to cover your fixed, ongoing costs like wages and servicing debts. Just because your business can’t operate doesn’t mean you don’t have to pay the interest on your bank loans, and your staff still need to cover their living expenses too.

Deplete your cash reserves. Once your cash reserves are depleted, you could be unable to service your debts or pay your staff.

Lose your staff. Without wages, your staff will look for alternative employment. Most often, this means your valued staff will take their skills directly to your competitor. Once they have a role at another business, they’re unlikely to come back to you when you’re back on your feet, so you’ll have to start again with new employees. That includes the cost of recruiting and training them, as well as the time it takes for them to become fully productive to the same level as your old team.

Deal with your creditors. If you can’t service your debts, you will need to speak with your creditors to arrange extensions or reduced payment plans. This can negatively affect your ability to secure finance at a favourable rate in the future. If you default on your loans, your credit rating could take a hit that’s hard to come back from.

Pay out of pocket. Meanwhile, depending on the event you’ve suffered, you may be out of pocket for repairs, replacement equipment, new premises, and more. If you can’t meet these costs, it may be impossible for your business to continue operating.

Struggle to get back on track. The net result of all this is that, as well as suffering a negative event, you’ll be burdened with significant financial worries as you try to recover. The repercussions could be felt for years as you get your business and your profit back on track.

While this is certainly a worst-case scenario, it’s also one that has been experienced by plenty of businesses in the past.

That’s why it’s important for you to understand the power of insurance, as well as what insurance options are right for your business. The right insurance policy will cover you in case of a negative event and will ensure you have the funds you need to meet your obligations while your business is getting back on its feet.

Don’t be one of the unlucky NZ businesses that thinks they’re insured or that they can weather any event, only to find that they’re not as protected as they thought they were. Contact The Advisers today to find out how we can help you identify the risks your business faces and how to insure for them.